Ahhh, freedom from debt. Being ahead of the game. No longer arguing about bills. Finally feeling financially secure. Actually having college funds for the kids, a savings, an emergency fund, even vacation money set aside.
Just starting my debt reduction plan has already made my breathing a little calmer. I’ve finally decided to face the beast and get my answers and move full steam ahead. It’s fun, I might add…very exhilarating and quite peaceful.
How do I start paying off the enormous pile I’ve accumulated? I know the whys, I know the good feelings that will come with the results, but how?
With the help of Get Rich Slowly, I’ve been able to start my plan. And quite frankly, the initial steps are easy.
Stop Acquiring New Debt
Stop using credit. Cut up credit cards and don’t finance anything. Also, while you’re at it, call the credit card companies and tell them you are “looking for a better deal”. I called one of mine and got the interest rate reduced to 4% and established a set monthly payment that I could afford.
This step makes a lot of sense to me. Some might hesitate to cut up the cards but in all actuality, it’s the damn cards that got me into this mess. The next step will substitute the need for any credit card.
Establish An Emergency Fund
I will start with $500 in a high-yield savings account. Within a month, I’ll knock that up to $1,000 than hit the next step hard (the debt snowball). Once my debt is under control I plan to get this fund up to $5,000 then eventually $10,000.
This money is not for shoes, beer or a haircut, hence the title. Getting an account online with easy transfer ability and the high-yield is a fantastic alternative to cracking out a credit card and racking up more debt.
Create A Debt Snowball
So, some new advice here. I was always under the impression that I should pay off the highest interest, highest balance debt first. After learning how money is psychological as well as mathematical, it made sense for me to organize them from the smallest to the largest balance then pay them in that order.
Ignore the interest rate. Pay the minimum balance on all of them except the smallest…throw every dollar against the smallest debt until it is eliminated then move onto the next smallest debt.
This idea is in Dave Ramsey’s book, Total Money Makeover (which I will be checking out at the library this week). I look forward to watching the accounts disappear one by one and creating that debt snowball.
So, now that I’ve learned the initial steps for my debt eradication, I have to find a way to budget it all. Of course there are other bills to consider like the electric bill, phone, cable, food, gas and the like.
My next quest is to understand how to ensure my bills are being paid on time and still establish my emergency fund and start the debt snowball. Likely, Dave Ramsey’s book will have some answers for me.